NEW YORK--(EON: Enhanced Online News)--CYS Investments, Inc. (NYSE: CYS) ("CYS", "we", "our", or the "Company")
today announced financial results for the quarter ended (the "Fourth
Quarter") and the year ended December 31, 2016.

“Net
realized and unrealized gain (loss) on derivative instruments”

Fourth Quarter 2016 Highlights

December 31, 2016 book value per common share of $8.33, after
declaring a $0.25 dividend per common share on December 12, 2016.

GAAP net income (loss) available to common stockholders of $(185.4)
million, or $(1.23) per diluted common share.

Core Earnings plus Drop Income of $36.2 million ($28.1 million Core
Earnings and $8.1 million Drop Income), or $0.24 per diluted common
share ($0.19 Core Earnings and $0.05 Drop Income).

Interest rate spread net of hedge, including Drop Income, of 1.28%.

December 31, 2016 leverage ratio of 7.06:1.

Operating expenses of $5.2 million, or 1.26% of average stockholders'
equity. Excluding the effects of a $1.7 million non-recurring prior
period tax charge, the Fourth Quarter operating expense ratio was
0.85%.

The Company's duration gap extended to 1.02 at December 31, 2016 from
0.50 at September 30, 2016.

Total stockholder return (loss) on common equity of (12.36%).

Full Year 2016 Highlights

Total dividends of $1.01 per common share.

GAAP net income (loss) available to common stockholders of $(4.4)
million, or $(0.04) per diluted common share.

Core Earnings plus Drop Income of $154.3 million ($121.4 million Core
Earnings and $32.9 million Drop Income), or $1.02 per diluted common
share ($0.81 Core Earnings and $0.21 Drop Income).

Interest rate spread net of hedge, including Drop Income, of 1.37%.

Operating expenses of $23.6 million, or 1.39% of average stockholders'
equity, an increase from $20.8 million, or 1.12% for the year ended
December 31, 2015. Excluding the effects of $2.6 million of
non-recurring charges, the operating expense ratio for the year ended
December 31, 2016 was 1.23%.

Repurchased 673,166 shares of the Company's common stock for an
aggregate purchase price of approximately $5.3 million at a
weighted-average price of $7.85 per share.

Total stockholder return (loss) on common equity of (0.21%).

Market Commentary

The Fourth Quarter began with a modest sell-off in U.S. Treasuries and
sovereign rates as markets reacted to heightened expectations of a
December Federal Reserve (the “Fed”) rate hike, and to diminished
expectations of global central banks' easing efforts. The unexpected
outcome of the U.S. Presidential Election (the "Election") prompted a
swift re-evaluation of interest rate outlooks, resulting in a
significant run-up in rates through year-end.

Prior to the Election, markets generally expected a "status quo"
outcome: continuation of current fiscal policies, pricing in a slow and
deliberate Fed tightening cycle, lower long-term rates, and low mortgage
rates. Instead, November's turn of events introduced uncertainty of a
new Presidential administration's (the "New Administration") changes to
future fiscal policy actions, including, but not limited to, tax
reductions, provisions to incentivize domestic corporations to
repatriate liquid assets held overseas, regulatory reform and measures
to increase domestic production of energy and manufacturing, which
collectively are expected to increase domestic growth and inflation.
Although program details have yet to be made clear, markets now
anticipate that the New Administration’s fiscal policy measures will
likely pull forward economic growth, and increase the federal budget
deficit. Whether this growth can be realized or not remains to be seen,
but markets now anticipate higher near-term domestic economic growth and
inflation. Based on recent Fed statements, these expectations could
compel the Fed to accelerate its interest rate normalization program. As
a result, following the Election, the markets rapidly repriced for an
environment of higher near-term potential GDP growth and inflation,
reversing the three-quarter long bond market rally.

Post-election through December 31, 2016, the markets experienced an
increase in the 10-year U.S. Treasury yield, a steepening yield curve,
and a corresponding decline in the price of Agency RMBS. The steepening
of the yield curve during the Fourth Quarter improved the near-term
reinvestment outlook. Equity returns (at current leverage levels) on our
target assets are in the mid to low teens. During the Fourth Quarter,
the 5-year U.S. Treasury yield rose 78 bps, ending the year at 1.93%;
similarly, the yield on the 10-year U.S. Treasury rose by 85 bps, ending
the year at 2.44%. For the same period, the price of Agency RMBS fell
3.1% as the price of 30-year FNMA 3.5% Agency RMBS fell from $105.55 on
September 30, 2016 to $102.33 on December 31, 2016. Over the course of
2016, Agency RMBS prices declined with 30-year FNMA 3.5% Agency RMBS
falling by 0.87% year-over-year. On the financing side of our business,
during the Fourth Quarter we continued to benefit from money market
reforms put in place prior in the year, which served to increase cash in
the financial system seeking government securities as collateral for
short-term investments. This benefited the financing side of our
business by supporting Agency RMBS repo funding costs, and reducing our
net hedging costs relative to where we believe costs would have been
absent the increased liquidity in the short term borrowing markets.

On December 14, 2016, the Fed raised the Federal funds rate 25 bps for
the first time in 2016. At year-end, the Federal Open Market Committee
("FOMC") and the financial markets were anticipating two to three rate
hikes in 2017. The financial markets and the FOMC will continue to
closely watch the New Administration’s fiscal policy plans carefully to
better gauge inflation and interest rate expectations. The current
outlook is characterized by a considerable amount of uncertainty.

Fourth Quarter 2016 Results

The Company’s book value per common share on December 31, 2016 was
$8.33, compared to $9.79 at September 30, 2016, after declaring a $0.25
dividend per common share on December 12, 2016. The book value was
negatively impacted by an increase in interest rates during the Fourth
Quarter as we experienced a dramatic rise in the 10-year U.S. Treasury
yield and a corresponding decline in the price of Agency RMBS. The
decrease in the value of the Company's Debt Securities during the Fourth
Quarter was partially offset by a net realized and unrealized gain in
the value of our derivative instruments.

In the Fourth Quarter, the Company generated Core Earnings plus Drop
Income (defined below) of $36.2 million, or $0.24 per diluted common
share, comprised of Core Earnings of $28.1 million, or $0.19 per diluted
common share, and Drop Income of $8.1 million, or $0.05 per diluted
common share. This compares to the quarter ended September 30, 2016 (the
"Third Quarter") Core Earnings plus Drop Income of $39.1 million, or
$0.26 per diluted common share, consisting of Core Earnings of $28.6
million, or $0.19 per diluted common share, and Drop Income of $10.5
million, or $0.07 per diluted common share. In response to a steepening
yield curve and a more favorable reinvestment environment during the
Fourth Quarter, we recycled out of a portion of 15-Year 2.5% Agency RMBS
securities into 30-Year 3.5% and 4.0% Agency RMBS.

Core Earnings decreased by approximately $0.5 million in the Fourth
Quarter from the Third Quarter primarily as a result of a $1.1 million
decrease in total interest income and a $2.7 million increase in
interest expense due to an increase in the average cost of funds on
repurchase agreements ("repo borrowings") and Federal Home Loan Bank of
Cincinnati Advances ("FHLBC Advances") (FHLBC Advances and collectively
with repo borrowings, "Total Outstanding Borrowings"). The decrease in
total interest income largely resulted from an increase in prepayment
speeds and the weighted-average cost of our Debt Securities portfolio
during the Fourth Quarter. The increase in prepayment speeds and
weighted-average cost of our Debt Securities portfolio during the Fourth
Quarter resulted in an additional $1.4 million of amortization expense
compared to the Third Quarter. The increase in interest expense is a
direct result of an increase in the average cost of funds to 0.81% in
the Fourth Quarter, as compared to 0.68% in the Third Quarter. The
increase in the average cost of funds was partially offset by a decrease
in average Total Outstanding Borrowings during the Fourth Quarter. The
decrease in Core Earnings in the Fourth Quarter was partially offset by
(i) a $2.4 million decrease in swap and cap interest expense, and (ii) a
$1.1 million decrease in total expenses, as further described below.
Drop Income decreased by $2.4 million in the Fourth Quarter as a result
of lower volume of forward purchase settling transactions from which we
derive Drop Income.

In the Fourth Quarter, total interest income decreased to $68.6 million
from $69.7 million in the Third Quarter as noted above, while the
average yield on our settled Debt Securities was relatively flat at
2.39% in the Fourth Quarter, as compared to 2.38% in the Third Quarter.
The Fourth Quarter weighted-average experienced CPR increased to 14.2%
from 14.0% in the Third Quarter, while amortization expense increased
$1.4 million to $23.5 million from $22.1 million in the Third Quarter
for the reasons described above. The weighted-average cost basis of our
Debt Securities portfolio increased slightly to $103.78 at December 31,
2016 from $103.72 at September 30, 2016.

The Company's net interest income of $48.4 million in the Fourth
Quarter, down approximately $3.8 million from $52.2 million in the Third
Quarter, is largely due to the decrease in total interest income and
increase in total interest expense described above.

Economic Net Interest Income and Economic Net Interest Expense are
non-GAAP measures. The following table presents a reconciliation of GAAP
net interest income and total interest expense to Economic Net Interest
Income and Economic Net Interest Expense, respectively, for each
respective period.

Three Months Ended

Year Ended

(dollars in thousands)

December 31,2016

September 30,2016

June 30,2016

March 31,2016

December 31,2016

December 31,2015

Net interest income

$

48,400

$

52,182

$

56,170

$

63,506

$

220,258

$

285,066

Swap and cap interest expense

10,128

12,493

14,779

18,398

55,798

100,110

Economic net interest income

$

38,272

$

39,689

$

41,391

$

45,108

$

164,460

$

184,956

Total interest expense

$

20,168

$

17,479

$

18,687

$

17,945

$

74,279

$

46,129

Swap and cap interest expense

10,128

12,493

14,779

18,938

55,798

100,110

Economic interest expense

$

30,296

$

29,972

$

33,466

$

36,883

$

130,077

$

146,239

The Company's Economic Net Interest Income, which takes into account
swap and cap interest expense, as well as interest expense on repo
borrowings and FHLBC Advances, was $38.3 million in the Fourth Quarter,
a decline of approximately $1.4 million from $39.7 million in the Third
Quarter. The decrease in Economic Net Interest Income was primarily due
to lower net interest income, as previously described, which was
partially offset by a decrease in swap and cap interest expense. A
combination of the lower weighted-average notional of swaps and caps
outstanding of $9.0 billion in the Fourth Quarter, compared to $9.3
billion in the Third Quarter, and an increase in the receive rate on
resetting swaps as a direct result of an increase in the three-month
London Interbank Offered Rate ("LIBOR") during the Fourth Quarter,
resulted in a $2.4 million decrease in swap and cap interest expense to
$10.1 million in the Fourth Quarter, from $12.5 million in the Third
Quarter. The weighted-average receive rate on our interest rate swaps
was 0.89% at December 31, 2016, compared to 0.77% at September 30, 2016.

In the Fourth Quarter, Economic Interest Expense, comprised of interest
expense on repo borrowings and swap and cap interest expense, was $30.3
million, compared to $30.0 million in the Third Quarter. Interest
expense on Total Outstanding Borrowings increased to $20.2 million in
the Fourth Quarter from $17.5 million in the Third Quarter due primarily
to a 13 bps increase in the average cost of funds while swap and cap
interest expense decreased by $2.4 million during the Fourth Quarter, as
previously noted. Overall, the adjusted average cost of funds and hedge
increased marginally to 1.04% during the Fourth Quarter from 0.99% in
the prior quarter. The Company’s interest rate spread net of hedge
including Drop Income dipped to 1.28% in the Fourth Quarter from 1.37%
in the prior quarter.

The Company recognized an aggregate net realized and unrealized loss
from investments of $(323.4) million in the Fourth Quarter, compared to
a net realized and unrealized loss from investments of $(18.4) million
in the Third Quarter. The net loss on investments during the Fourth
Quarter was triggered by an increase in interest rates during the Fourth
Quarter resulting in a decrease in the prices of our Agency RMBS as
previously described. During the Third Quarter, prices of 15-year 3.0%
and 15-year 3.5% Agency RMBS increased by $0.12 to $104.98 and by $0.56
to $105.42, respectively.

The Company recognized a net realized and unrealized gain on derivative
instruments of $110.0 million for the Fourth Quarter, comprised of
$157.0 million of net realized and unrealized gain on swap and cap
contracts, and $(47.0) million of net realized and unrealized loss on
TBA Derivatives, compared to a net realized and unrealized gain on
derivative instruments of $63.6 million in the Third Quarter, comprised
of $51.2 million of net realized and unrealized gain on swap and cap
contracts, and $12.4 million of net realized and unrealized gain on TBA
Derivatives. The net increase in value of our swaps and caps during the
Fourth Quarter was due primarily to an increase in interest rates during
the Fourth Quarter. For illustrative purposes, 5-year swap rates
increased by 80 and 20 bps during the Fourth and Third Quarters,
respectively.

The Company’s operating expense ratio as a percentage of average
stockholders' equity was 1.26% in the Fourth Quarter, compared to 1.42%
in the Third Quarter. During the Fourth Quarter, the Company decreased
the incentive compensation accrual by $1.6 million as a result of actual
performance. The Company also recorded a $1.7 million non-recurring
charge related to a prior period tax liability, which is recorded in
General, administrative and other expenses in the Consolidated
Statements of Operations. Excluding the effect of the non-recurring
charge, the Fourth Quarter operating expense ratio was 0.85%.

Set forth below are summary financial data for the four quarters in
2016, and the years ended December 31, 2016 and 2015:

(in thousands)

Three Months Ended *

Year Ended

Key Balance Sheet Metrics

December 31,2016

September 30,2016

June 30,2016

March 31,2016

December 31,2016

December 31,2015

Average settled Debt Securities (1)

$

11,484,017

$

11,725,021

$

11,887,351

$

11,905,997

$

11,781,920

$

12,962,340

Average total Debt Securities (2)

$

13,207,856

$

13,596,739

$

13,230,800

$

12,945,855

$

13,212,278

$

14,223,921

Average repurchase agreements and FHLBC Advances (3)

$

9,905,199

$

10,223,051

$

10,412,784

$

10,492,636

$

10,290,967

$

11,395,383

Average Debt Securities liabilities (4)

$

11,629,038

$

12,094,769

$

11,756,233

$

11,532,494

$

11,721,325

$

12,656,964

Average stockholders' equity (5)

$

1,646,903

$

1,749,543

$

1,725,879

$

1,714,728

$

1,704,701

$

1,856,455

Average common shares outstanding (6)

151,434

151,414

151,452

151,788

151,522

156,686

Leverage ratio (at period end) (7)

7.06:1

6.96:1

6.91:1

6.76:1

7.06:1

6.77:1

Book value per common share (at period end) (8)

$

8.33

$

9.79

$

9.55

$

9.46

$

8.33

$

9.36

Weighted-average amortized cost of Agency RMBS and U.S. Treasuries (9)

$

103.78

$

103.72

$

103.42

$

103.76

$

103.78

$

103.69

Key Performance Metrics

Average yield on settled Debt Securities (10)

2.39

%

2.38

%

2.52

%

2.74

%

2.50

%

2.56

%

Average yield on total Debt Securities including Drop Income (11)

2.32

%

2.36

%

2.50

%

2.71

%

2.48

%

2.56

%

Average cost of funds (12)

0.81

%

0.68

%

0.72

%

0.68

%

0.72

%

0.40

%

Average cost of funds and hedge (13)

1.22

%

1.17

%

1.29

%

1.39

%

1.26

%

1.28

%

Adjusted average cost of funds and hedge (14)

1.04

%

0.99

%

1.14

%

1.26

%

1.11

%

1.16

%

Interest rate spread net of hedge (15)

1.17

%

1.21

%

1.23

%

1.35

%

1.24

%

1.28

%

Interest rate spread net of hedge including Drop Income (16)

1.28

%

1.37

%

1.36

%

1.45

%

1.37

%

1.40

%

Operating expense ratio (17)

1.26

%

1.42

%

1.36

%

1.48

%

1.39

%

1.12

%

Total stockholder return on common equity (18)

(12.36

%)

5.13

%

3.59

%

3.85

%

(0.21

%)

(0.38

%)

Constant prepayment rate (weighted-average experienced 1-month) (19)

14.2

%

14.0

%

12.9

%

7.6

%

12.1

%

10.4

%

__________

(1) The average settled Debt Securities is calculated by averaging
the month end cost basis of settled Debt Securities during the period.(2)
The average total Debt Securities is calculated by averaging
the month end cost basis of total Debt Securities and all TBA contracts
during the period.(3) The average repurchase agreements and FHLBC
Advances are calculated by averaging the
month end repurchase agreements and FHLBC Advances balances during the
period.(4) The average Debt Securities liabilities are calculated
by adding the average month end repurchase
agreements and FHLBC Advances balances plus average unsettled Debt
Securities (inclusive of TBA Derivatives) during the period.(5)
The average stockholders' equity is calculated by averaging
the month end stockholders' equity during the period.(6) The
average common shares outstanding are calculated by averaging
the daily common shares outstanding during the period.(7) The
leverage ratio is calculated by dividing
(i) the Company's repurchase agreements and FHLBC Advances balances plus
payable for securities purchased minus
receivable for securities sold plus net TBA
Derivatives positions (as described below) by (ii) stockholders' equity.(8)
Book value per common share is calculated by dividing
total stockholders' equity less the
liquidation value of preferred stock at period end by common shares
outstanding at period end.(9) The weighted-average amortized cost
of Agency RMBS and U.S. Treasuries is calculated using the
weighted-average amortized cost by security divided
by the current face value at period end.(10) The average yield on
settled Debt Securities for the period is calculated by dividing
total interest income by average settled Debt Securities.(11) The
average yield on total Debt Securities including Drop Income for the
period is calculated by dividing total
interest income plus Drop Income by average total Debt Securities. Drop
Income is a component of our net realized and unrealized gain (loss) on
investments and net realized and unrealized gain (loss) on derivative
instruments in the consolidated statements of operations. Drop Income is
the difference between the spot price and the forward settlement price
for the same security on trade date. This difference is also the
economic equivalent of the assumed net interest margin (yield minus
financing costs) of the bond from trade date to settlement date. We
derive Drop Income through utilization of forward settling transactions.(12)
The average cost of funds for the period is calculated by dividing
repurchase agreement and FHLBC Advances interest expense by average
repurchase agreements and FHLBC Advances for the period.(13) The
average cost of funds and hedge for the period is calculated by dividing
repurchase agreement, FHLBC Advances and swap and cap interest expense
by average repurchase agreements and FHLBC Advances.(14) The
adjusted average cost of funds and hedge for the period is calculated by dividing
repurchase agreement, FHLBC Advances and swap and cap interest expense
by average Debt Securities liabilities.(15) The interest rate
spread net of hedge for the period is calculated by subtracting
average cost of funds and hedge from average yield on settled Debt
Securities.(16) The interest rate spread net of hedge including
Drop Income for the period is calculated by subtracting
adjusted average cost of funds and hedge from average yield on total
Debt Securities including Drop Income.(17) The operating expense
ratio for the period is calculated by dividing
operating expenses by average stockholders' equity.(18) The total
stockholder return on common equity is calculated as the change in book
value plus dividend distributions on common
stock divided by book value at the end of the prior period.(19)
CPR represents the weighted-average 1-month CPR of the Company's Agency
RMBS during the period.* All percentages are annualized except
total stockholder return on common equity.

Portfolio

Effective January 1, 2016, the Company recognized TBAs that do not
qualify for the regular-way scope exception in the Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") 815 -
Derivatives and Hedging as derivatives (which we refer to as "TBA
Derivatives"). TBA Derivatives are accounted for as a series of
derivative transactions and are recorded as either assets or liabilities
at fair value in the consolidated balance sheets with changes in fair
value recognized in the consolidated statements of operations in "Net
realized and unrealized gain (loss) on derivative instruments".

The Company's Debt Securities portfolio, including net TBA Derivatives
positions, at fair value, was $12.3 billion at December 31, 2016, a
decrease of $1.7 billion from $14.0 billion at September 30, 2016.
During the Fourth Quarter, in response to a steepening yield curve, we
sold lower yielding, and purchased higher yielding, Agency RMBS.

The following tables detail the Company's Debt Securities portfolio,
inclusive of $(0.3) billion, $2.2 billion, and $0 of net TBA Derivative
positions at December 31, 2016, September 30, 2016, and December 31,
2015, respectively (dollars in thousands):

(1) Represents a forward yield and is calculated based on the
market price of the security at December 31, 2016.

(2) Represents CPR for those bonds held at December 31, 2016.
CPR is a method of expressing the prepayment rate for a mortgage pool
that assumes a constant fraction of the remaining principal is prepaid
each month. Specifically, the CPR reflects the annualized version of the
experienced prior three-month prepayment rate for the securities in the
portfolio at December 31, 2016. Securities with no prepayment history
are excluded from this calculation.

(3) The weighted-average months to reset of the Company's
Hybrid ARM portfolio was 67.1 at December 31, 2016. Months to reset is
the number of months remaining before the fixed rate on a Hybrid ARM
becomes a variable rate. At the end of the fixed period, the variable
rate will be determined by the margin and the pre-specified caps of the
Hybrid ARM and will reset thereafter annually.

Leverage & Liquidity

Our leverage was 7.06:1 at December 31, 2016, compared to 6.96:1 at the
end of the Third Quarter. As of December 31, 2016 and September 30,
2016, the Company had financed its portfolio with approximately $9.7
billion and $9.6 billion of Total Outstanding Borrowings, respectively,
and recognized payable for securities purchased net of receivable for
securities sold of $1.5 billion and $0.4 billion, respectively.

At December 31, 2016, the Company’s liquidity position, consisting of
unpledged Agency RMBS, U.S. Treasuries and cash and cash equivalents was
approximately $0.9 billion, or 61.0% of stockholders' equity, compared
to $1.2 billion, or 70.3% of stockholders' equity, at September 30, 2016.

Financing

During the Fourth Quarter, the Company financed its portfolio with
average Total Outstanding Borrowings of $9.9 billion, with an average
cost of funds of 0.81%, compared to $10.2 billion and 0.68%,
respectively, during the Third Quarter.

During the Fourth Quarter, the Company did not experience a decline in
the availability of repo borrowings. At December 31, 2016, repo
borrowings with any individual counterparty were less than 7.1% of our
total repo borrowings. As of December 31, 2016, we had 50 counterparties
available to finance the Company's operations through repo borrowings.
Below is a summary, by region, of our Total Outstanding Borrowings at
December 31, 2016 (dollars in thousands):

Counterparty Region

Number of Counterparties

Total Outstanding Borrowings

% of Total

North America

22

$5,853,544

60.4%

Europe

8

2,214,476

22.8%

Asia

5

1,623,524

16.8%

Total

35

$9,691,544

100.0%

Hedging

The Company utilizes interest rate swap and cap contracts (a "swap" or
"cap", respectively) to manage interest rate risk associated with the
financing of its Debt Securities portfolio.

As of December 31, 2016, the Company held swaps with an aggregate
notional amount of $6.5 billion, a weighted-average fixed rate of 1.23%,
a weighted-average receive rate of 0.89%, a weighted-average net pay
rate of 0.34% and a weighted-average remaining expiration of 3.0 years.
The receive rate on the Company's swaps is the three-month LIBOR, which
resets quarterly and stood at 1.00% at December 31, 2016, up from 0.85%
at September 30, 2016. At December 31, 2016, the Company held caps with
a notional amount of $2.5 billion, a weighted-average cap rate of 1.28%,
and a weighted-average remaining expiration of 3.0 years.

As of September 30, 2016, the Company held swaps with an aggregate
notional amount of $6.5 billion, a weighted-average fixed rate of 1.23%,
a weighted-average receive rate of 0.77%, a weighted-average net pay
rate of 0.46% and a weighted-average remaining expiration of 3.3 years.
At September 30, 2016, the Company held caps with a notional amount of
$2.5 billion, a weighted-average cap rate of 1.28%, and a
weighted-average remaining expiration of 3.3 years.

Key provisions of the Company's outstanding swaps and caps at
December 31, 2016 are summarized below (dollars in thousands):

Interest Rate Swaps

Weighted-Average

Expiration Year

Fixed Pay Rate

Receive Rate

Net Pay (Receive) Rate

Notional Amount

Fair Value

2017

0.82%

0.94%

(0.12)%

$

1,000,000

$

2,316

2018

1.00%

0.91%

0.09%

1,500,000

4,359

2020

1.45%

0.86%

0.59%

1,750,000

23,474

2021

1.21%

0.89%

0.32%

1,700,000

48,931

2022

1.98%

0.88%

1.10%

500,000

1,528

Total

1.23%

0.89%

0.34%

$

6,450,000

$

80,608

Interest Rate Caps

Weighted-Average

Expiration Year

Cap Rate

Receive Rate

Cap Rate

Notional Amount

Fair Value

2019

1.34%

n/a

1.34%

$

800,000

$

8,051

2020

1.25%

n/a

1.25%

1,700,000

34,481

Total

1.28%

n/a

1.28%

$

2,500,000

$

42,532

Duration Gap

Our net duration gap increased to 1.02 at December 31, 2016 from 0.50 at
September 30, 2016 as a direct result of an increase in interest rates
during the Fourth Quarter.

Drop Income

"Drop Income" is a component of our net realized and unrealized gain
(loss) on investments and net realized and unrealized gain (loss) on
derivative instruments in the consolidated statements of operations, and
is therefore excluded from Core Earnings. Drop Income is the difference
between the spot price and the forward settlement price for the same
Agency RMBS on the trade date. This difference is also the economic
equivalent of the assumed net interest spread (yield less financing
costs) of the Agency RMBS from trade date to settlement date. The
Company derives Drop Income through utilization of forward settling
transactions of Agency RMBS. The Company's Drop Income and average
market value of all TBAs outstanding during the Fourth Quarter and Third
Quarter, and years ended December 31, 2016 and 2015 follow (dollars in
thousands):

Three Months Ended

Year Ended

(in thousands)

December 31, 2016

September 30, 2016

December 31, 2016

December 31, 2015

Drop Income

$

8,061

$

10,524

$

32,896

$

32,609

Average TBAs market value

1,534,878

1,851,353

1,404,095

1,244,321

Prepayments

We received $534.7 million in principal repayments and prepayments,
experienced a weighted-average CPR of approximately 14.2% and net
amortization expense of $23.5 million during the Fourth Quarter. This
compared to $518.5 million in principal repayments and prepayments, a
weighted-average CPR of approximately 14.0%, and net amortization
expense of $22.1 million for the Third Quarter. The Company believes
that the increase in CPR was due principally to higher refinancings
resulting from the expected Fed rate hike in December.

Dividend

The Company declared a common dividend of $0.25 per share for the Fourth
Quarter, unchanged from the Third Quarter. Using the closing share price
of $7.73 on December 31, 2016, the Fourth Quarter dividend equates to an
annualized dividend yield of 12.9%.

Share Repurchase Program

The Company did not repurchase any shares in the Third and Fourth
Quarters. As of December 31, 2016, the Company had approximately $155.5
million available under the share repurchase program to repurchase
shares of its common stock.

Results for the Year Ended December 31, 2016

The Company generated net income (loss) available to common stockholders
of $(4.4) million for the year ended December 31, 2016, or $(0.04) per
diluted common share, compared to net income (loss) available to common
stockholders of $(25.6) million, or $(0.17) per diluted common share in
2015. Book value per common share decreased to $8.33 at December 31,
2015 from $9.36 at December 31, 2015, after declaring $1.01 per share in
dividends during 2016. The year-over-year decrease in book value per
common share and net income was due primarily to net losses on
investments as a result of an increase in interest rates during the
Fourth Quarter. The Company recognized an aggregate net realized and
unrealized gain (loss) on investments of $(113.0) million for the year
ended December 31, 2016, compared to a net realized and unrealized loss
of $(116.1) million in the prior year.

During the year ended December 31, 2016, the Company had Core Earnings
plus Drop Income of $154.3 million, or $1.02 per diluted common share
($0.81 Core Earnings and $0.21 Drop Income), compared to $176.8 million,
or $1.13 per diluted common share ($0.92 Core Earnings and $0.21 Drop
Income), in 2015. The year-over-year decrease in Core Earnings plus Drop
Income per share was primarily the result of a decrease in the average
interest rate spread net of hedge to 1.24% from 1.28% for the years
ended December 31, 2016 and 2015, respectively, on a smaller investment
portfolio, with average total Debt Securities of $13.2 billion for the
year ended December 31, 2016, compared to $14.2 billion for the year
ended December 31, 2015.

The Company recognized a net realized and unrealized gain (loss) on
derivative instruments of $(11.5) million for the year ended
December 31, 2016, comprised of $9.2 million of net realized and
unrealized gain on swap and cap contracts, and $(20.7) million of net
realized and unrealized loss on TBA Derivatives. During 2015, the
company recognized a net realized and unrealized gain (loss) on
derivative instruments of $(54.9) million. The decrease in net realized
and unrealized gain (loss) on derivative instruments during 2016 was
primarily due to an increase in interest rates during 2016, resulting in
an increase in the value of our swaps. For illustrative purposes, 5-year
swap rates increased by 24 bps and decreased by 3 bps during 2016 and
2015, respectively.

Operating expenses were $23.6 million and $20.8 million for the years
ended December 31, 2016 and 2015, respectively, representing an expense
ratio of 1.39% for 2016, compared to 1.12% for 2015. The increase in
operating expenses during 2016 was due primarily to an increase in
compensation and benefits expense due to an increase in headcount and
$2.6 million of non-recurring charges, including a $1.7 million prior
period tax charge. Excluding the effects of non-recurring charges, the
operating expense ratio was 1.23% for the year ended December 31, 2016.

Conference Call

The Company will host a conference call at 9:00 AM Eastern Time on
Thursday, February 16, 2017, to discuss its financial results for the
quarter and year ended December 31, 2016. To participate in the call by
telephone, please dial (888) 647-8086 at least 10 minutes prior to the
start time and reference the conference passcode 66321343. International
callers should dial (484) 821-5013 and reference the same passcode. The
conference call will be webcast live over the Internet and can be
accessed at the Company’s web site at http://www.cysinv.com.
To listen to the live webcast, please visit http://www.cysinv.com
at least 15 minutes prior to the start of the call to register,
download, and install necessary audio software.

A dial-in replay will be available on Thursday, February 16, 2017, at
approximately 12:00 PM Eastern Time through Thursday, March 2, 2017, at
approximately 11:00 AM Eastern Time. To access this replay, please dial
(855) 859-2056 and enter the conference ID number 66321343.
International callers should dial (404) 537-3406 and enter the same
conference ID number. A replay of the conference call will also be
archived on the Company’s website at http://www.cysinv.com.

Additional Information

The Company will make available a supplemental presentation on the
Company's website, contemporaneously with the filing of this Form 8-K.
The supplemental presentation will be available on the
Webcasts/Presentations section of the Company's website.

About CYS Investments, Inc.

CYS Investments, Inc. is a specialty finance company that primarily
invests on a leveraged basis in residential mortgage pass-through
certificates for which the principal and interest payments are
guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. The Company refers
to these securities as Agency RMBS. The Company has elected to be
treated as a real estate investment trust for federal income tax
purposes.

Forward-Looking Statements Disclaimer

This release contains "forward-looking statements" made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, including those relating to interest rate volatility, the
prices and supply and demand of Agency RMBS, earnings, equity returns,
yields, investment environment, economic growth, inflation, interest
rates, hedges, prepayments, the U.S. and global economies, and the
effect of actions of the U.S. government, including the Fed, and the
FOMC on the Company's results. Forward-looking statements typically are
identified by use of the terms such as "believe," "expect,"
"anticipate," "estimate," "plan," "continue," "intend," "should," "may"
or similar expressions. Forward-looking statements are based on the
Company's beliefs, assumptions and expectations of the Company's future
performance, taking into account all information currently available to
the Company. The Company cannot assure you that actual results will not
vary from the expectations contained in the forward-looking statements.
All of the forward-looking statements are subject to numerous possible
events, factors and conditions, many of which are beyond the control of
the Company and not all of which are known to the Company, including,
without limitation, market conditions and those described in the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2015 and Quarterly Reports on Form 10-Q for the quarters ended March
31, 2016, June 30, 2016 and September 30, 2016, which have been filed
with the Securities and Exchange Commission. All forward-looking
statements speak only as of the date on which they are made. New risks
and uncertainties arise over time, and it is not possible to predict
those events or how they may affect us. Except as required by law, the
Company is not obligated to, and does not intend to, update or revise
any forward-looking statements, whether as a result of new information,
future events or otherwise.

Net realized and unrealized gain (loss) on investments, FHLBC
Advances and other income

(323,211

)

(18,077

)

65,213

163,100

(112,975

)

(113,946

)

Swap and cap interest expense

(10,128

)

(12,493

)

(14,779

)

(18,398

)

(55,798

)

(100,110

)

Net realized and unrealized gain (loss) on derivative instruments

109,951

63,625

(44,535

)

(140,524

)

(11,483

)

(54,932

)

Net gain (loss) on derivative instruments

99,823

51,132

(59,314

)

(158,922

)

(67,281

)

(155,042

)

Total other income (loss)

$

(223,388

)

$

33,055

$

5,899

$

4,178

$

(180,256

)

$

(268,988

)

Expenses:

Compensation and benefits

$

1,885

$

3,619

$

3,565

$

3,865

$

12,934

$

12,121

General, administrative and other

3,287

2,608

2,294

2,488

10,677

8,722

Total expenses

5,172

6,227

5,859

6,353

23,611

20,843

Net income (loss)

$

(180,160

)

$

79,010

$

56,210

$

61,331

$

16,391

$

(4,765

)

Dividends on preferred stock

(5,203

)

(5,203

)

(5,203

)

(5,203

)

(20,812

)

(20,813

)

Net income (loss) available to common stockholders

$

(185,363

)

$

73,807

$

51,007

$

56,128

$

(4,421

)

$

(25,578

)

Net income (loss) per common share basic & diluted

$

(1.23

)

$

0.49

$

0.34

$

0.37

$

(0.04

)

$

(0.17

)

__________________

(1) Derived from audited consolidated financial statements.

Core Earnings

"Core Earnings" represents a non-GAAP financial measure and is defined
as net income (loss) available to common stockholders, excluding net
realized and unrealized gain (loss) on investments and derivative
instruments, and net unrealized gain (loss) on FHLBC Advances.
Management uses Core Earnings to evaluate the effective yield of the
portfolio after operating expenses. The Company believes that providing
users of the Company's financial information with such measures, in
addition to the related GAAP measures, gives investors greater
transparency and insight into the information used by the Company's
management in its financial and operational decision-making.

The primary limitation associated with Core Earnings as a measure of the
Company's financial performance over any period is that it excludes the
effects of net realized and unrealized gain (loss) on investments and
derivative instruments, and net unrealized gain (loss) on FHLBC
Advances. In addition, the Company's presentation of Core Earnings may
not be comparable to similarly-titled measures of other companies, which
may use different calculations. As a result, Core Earnings should not be
considered a substitute for the Company's GAAP net income (loss), a
measure of our financial performance or any measure of our liquidity
under GAAP.

The following table reconciles Net income to Core Earnings, a non-GAAP
measure, and summarizes Core Earning plus Drop Income for the periods
presented.

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